Question

Perfectly competitive firm Billies Paradise Inc. sells winter coats for cats. Cat coats sell for $72 each. The fixed costs of production are $100. The total variable costs are $64 for one unit, $84 for two units, $114 for three units, $184 for four units and $270 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost and marginal cost for each output level (one to five units). On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves. What is the profit maximizing quantity?
Q7 The short-run cost function of a company

Answer 1

Answer on Question #44219, Economics, Microeconomics

$\mathrm{TC} = \mathrm{FC} + \mathrm{VC}, \mathrm{TR} = \mathrm{P}^{*}\mathrm{Q}, \mathrm{TP} = \mathrm{TR} - \mathrm{TC}, \mathrm{MC} = \Delta \mathrm{TC} / \Delta \mathrm{Q}$ .

Profit is maximized in the point, where $\mathrm{MR} = \mathrm{MC} = \mathrm{P}$.

As we can see from these to graphs, profit is maximized, when 4 units are produced and total profit equals: $\mathrm{TP} = \$4$.

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